Schumer Plan – the CIDER Act– Modernizes Definition of Hard Cider to Ensure All Products Can Be Labeled & Taxed Like Hard Cider, Not Wine — Allows Producers that Often Suffer from Frost & Bad Weather to Add New Stable Source of Income

Today, on a press conference call, U.S. Senator Charles E. Schumer unveiled a new plan to boost the sales for New York’s over 20 existing hard apple cider producers and allow the over 650 apple growers to expand their business and add this increasingly popular craft beverage to their product line. Schumer explained that the alcohol content of New York’s hard cider fluctuates greatly due to sugar content, and current law often forces it to be taxed at a higher rate, preventing it from being labeled as hard cider. Compliance adds a significant financial burden to producers and consumers, and an unpredictable nature to the business, which makes it less attractive for potential new cider producers. Schumer therefore launched his proposal, the CIDER Act (Cider, Investment & Development through Excise Tax Reduction Act), to modernize the definition for hard apple and pear cider in the Internal Revenue Code (IRC) that would increase their allowed alcohol by volume from 7 percent to 8.5 percent, encompassing significantly more hard cider products and allowing them to be labeled and taxed like hard cider, rather than wine.

Schumer’s proposal would also address existing tax issues related to carbonation levels in hard cider, and would put the new definition in line with that of the European Union, so producers can better compete with European products abroad. Hard cider is a value-added product that is sold around the same price every year; therefore hard cider gives producers a stable source of income when apple crops suffer due to weather and other unforeseen factors. New York apple producers are increasingly interested in producing smaller, artisanal batches of hard cider, but cite the cost and difficulty to comply with the IRC definition as significant impediments to expanding their businesses.

“New York is the second largest apple producer in the country, and there’s no doubt it should be at the core of the hard cider industry, which is rapidly growing in popularity,” said Schumer. “However, current federal tax rules make it extremely costly for producers and consumers alike to produce, market and sell this product, which could prevent New York’s hundreds of apple growers and hard cider producers from fully benefiting from the stable income that comes with this new product. That is why I’m pushing a plan that will modernize the definition of hard cider in the federal tax code, to ensure that all products can be labeled and taxed for what they actually are, all while increasing New York cider producers’ ability to compete overseas.

“If we don’t move quickly to support and grow this blossoming industry in New York, other states will soon worm into this market,” Schumer continued.

New York is the second largest apple producer nationwide, harvesting a total of 29.5 million bushels annually from over 650 farms and 41,000 acres across the state. In recent years, thanks to the growing popularity of hard cider, many apple producers have turned to producing this craft beverage as a method to keep apple orchards profitable, generate new economic development opportunities, and attract a new visitor demographic to their farms. There has been an increasing number of hard cider producers as a result, starting with a few producers a few years ago to over 20 today. And Schumer highlighted that number should only continue to grow, as a significant number of apple farmers are interested in adding this popular product, and have sought out advice and expertise from the Cornell Cooperative to do so.

Producing hard cider offers major benefits to apple orchards, whether they choose to increase production and add additional acres of “hard cider trees,” or if farmers simply use existing products to diversify their business. Most importantly, apple and other fruit growers who have suffered from frosts and bad weather in recent years, have benefited from adding hard cider into their business model, as it is not nearly as susceptible to these unpredictable occurrences. Some producers grow specific varieties of apples to produce hard cider, while other producers can use apples from their crops that have been damaged by storms. Hard cider can also be made from apples that are high quality, but that are not as aesthetically pleasing to sell on a farmer stand, and that would otherwise be sold at a loss or thrown away. In addition, hard cider is a value-added product, and can reign in significant value for producers than simply selling the same apples. However, the federal definition of hard cider under the Internal Revenue Code is restrictive to both current producers as well as those hundreds of growers that would like to enter production of this craft beverage.

Schumer highlighted that under current federal law, the outdated definition of hard apple and pear cider only allows for up to 7% alcohol by volume before it is taxed as wine, and only a certain level of carbonation before it is subject to the champagne tax. All of New York’s cider producers are small craft cider operators, and because they rely on natural products, there is very little predictability and control over the precise alcohol content of their product. In addition, some consumers of hard apple cider expect a high level of carbonation as a substitute for beer, and current federal tax law doesn’t permit the desired amount without classifying the product as champagne. In both cases, hard cider often falls into a different beverage category, which makes non-compliant ciders subject to higher alcohol excise taxes, and complicates labeling issues. This makes the product more expensive for producers and consumers alike, and can make the sale and marketing of cider significantly more difficult. Schumer explained that consumers at local bars and restaurants are buying these products alongside beer, which means that virtually all ciders should be under $15/750ml bottle, and simply cannot compete when subject to higher excise taxes such as those in effect with champagne and wine. To illustrate, current law definition results in a tax of as much as $1.07 per gallon if the alcohol content is more than 7% and as much as $3.30 per gallon if it contains more than 39% carbon dioxide by volume. With the definition change, all hard cider will be taxed at the same rate of $.23 per gallon, equivalent to the excise tax on beer. The new definition will also apply for the smallest producers to ensure they can maintain their discounted $.17 per gallon tax on all hard cider production.

Schumer’s solution, the CIDER Act, would address these issues by expanding the current definition of hard cider under the IRC to bring in line with the definition of the beverage in the European Union. This would be vastly beneficial for a variety of reasons, mainly because it expands the amount and type of hard apple cider products that can still be taxed and labeled as such. First, it would increase the level of alcohol content from 7% to 8.5%, to ensure that those craft artisanal batches with higher alcohol content are still subject to the hard cider tax, rather than wine. Second, the proposal would remove carbonation limits to ensure the products aren’t subject to the higher tax levels on champagne. Third, by putting New York hard cider products on a level playing field with those in the European Union, domestic products can better compete in European markets where fruit-based ciders are extremely popular.

According to IBIS World, an analyst of the beverage industry, sales of domestically produced cider have more than tripled to a projected $601 million in 2012, from $178 million in 2007. There has been a distinct spike in consumption of hard cider across the country in recent years, and the demand for specialty apples grown for hard cider production has also been very high, with prices from $20 to $50 per bushel. For this reason, Schumer believes his plan will spur a long-term trend towards the increased profitability growth of hard cider in the apple and beverage industries, just as the farm wineries and microbreweries sectors have grown since the 1980s. As the hard cider industry grows, production facilities could catalyze ecotourism and provide a reliable source of income for New York apple growers, similar to the farm wineries that now comprise a significant sector of the State’s grape industry.

Schumer provided a regional breakdown for the acreage of apple orchards across New York:

· In the Capital Region there are 3,648 acres of apple orchards.

· In Central New York there are 1,942 acres of apple orchards

· In the Rochester Finger Lakes there are 28,285 acres of apple orchards

· In the Southern Tier there are 634 acres of apple orchards

· In Western New York there are3,478 acres of apple orchards

· In the North Country there are 3,343 acres of apple orchards

· In the Hudson Valley there are 7,918 acres of apple orchards

“We in the College of Agriculture and Life Sciences (CALS) at Cornell University applaud Senator Schumer’s proposal to revise the IRS tax code definition for hard cider. Hard cider production is already an important provider of value-added income for many of New York State’s 650-plus apple growers. Senator Schumer’s proposal will regularize the tax rates on hard cider, allowing New York’s cider producers to label and market their products independently of wine, thus helping to unlock the full potential of this stable and profitable source of revenue. Hard cider production offers growers an alternative market for weather-damaged apples or those cosmetically unsuitable for store shelves, including fruit russetted by frost. CALS has long recognized the value of hard cider production to apple growers and local economies. From our workshops on hard cider production, to the research conducted by our scientists to develop new cider apple varieties and new methods to use popular commercial varieties in cider manufacture, the college is committed to supporting this important and growing industry for our state,” said Kathryn J. Boor, Ph.D., The Ronald P. Lynch Dean of the College of Agriculture and Life Sciences.

“The popularity of hard cider is seeing a big boost as consumers get a taste of the great products being offered by New York growers and cider makers. New York Farm Bureau is very thankful of Sen. Schumer’s efforts to address changes in the tax code. His initiative will contribute to the growth and diversification of these farm based businesses and the jobs they provide to their local communities,” said Dean Norton, President of New York Farm Bureau.